Rhode Island local pension plans get mixed report card

A report card on Rhode Island's 35 locally administered pension plans issued Monday shows that while some are in strong financial shape, 60% are in critical status with a combined unfunded liability of $2.5 billion. The second annual report was released by state Treasurer Seth Mazaginer, who chairs the Advisory Council for Locally Administered Pension Plans.

For the 29 plans whose funding status has improved since fiscal year 2012, the report attributes that improvement to a rising stock market and plans making full actuarial required contributions, with most municipalities meeting or exceeding those payments in the most recently reported four years.

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The report also noted that 14 plans have investment return assumptions at or below 7%, "making them less likely to face future unexpected shortfalls."

For the underfunded plans, assumptions about investment returns and payroll growth "may not be realistic," said the report, which cited Providence's 8% return assumption as the highest in the state.

"In more than a few cases ... local pension liabilities are, or have the potential for, crowding out other important budget priorities."

The report cautions that "there is no one measure that fully portrays the health and sustainability of a pension system," and while the most common metric for pension health is funded status, "that can also be misleading if viewed in isolation."

Municipalities should develop and follow strong funding plans that are based on realistic actuarial assumptions. Benefit levels should be fair and sustainable. Investment strategies should balance the need to achieve strong returns with protecting against risk. Above all, municipalities should be transparent about the condition of their pension plans and the way in which they are managed," the report said.

By contrast, "only four of the 118 municipal pension plans managed by the state through the Municipal Employees' Retirement System (MERS) are in critical status," Mr. Magaziner noted in a statement. He said he hoped the report will be helpful to stakeholders engaged in policy discussions "on the strength and sustainability of municipal pension plans."

The advisory council for local pension plans was established in 2016 by the General Assembly and is required to produce an annual report. Members of the volunteer committee include the state's auditor and director of revenue, a town administrator and an AFL-CIO official.